Email to Prime Minister et al

Reply to the comment left by Mark Alexander at 25/03/2019 - 13:20
Mark, first of all, thank you for your comment. Every comment is valuable. I wasn’t trying to avoid answering it, it was simply a matter of finding the time. There is a considerable backlog of comments before yours that I have not had the time to respond to. After the initial few comments I did not receive any further intimation that people had commented until Victoria’s, for some reason.

Rent-a-Room allowance is for a single lodger and is limited to, I think, £7500 pa. I think landlords would be doing themselves a disfavour if they could only claim this on each of their properties and nothing else. If they had a far bigger rental profit, they would only be able to claim £7500 tax free. But if this is what they want, then I agree. There will be a lot of very unhappy landlords.

Stamp Duty. Yes. I agree that there should be no difference in stamp duty for home owners and landlords when buying a property. Level playing field.

Same rules on fire and gas safety as owner occupiers. You have got me stumped here. I think new-build houses have to meet these fire safety rules but you are right, I think existing houses should also have the same safety standards. But you win on this one, since the argument goes that if you are looking after someone elses’ safety you have a higher duty of care. But, as I mentioned in another thread, it’s not as if landlords are not getting allowances to set off against tax, which an oo is not.

Pay no licensing fees. I think licensing is an abomination and should be abolished. Mrs Thatcher’s Housing Act 1988 brought in a very simple registration process and councils restricted their interference to objectively prescribed safety measures and a few other items. It was Mr Blair’s Housing Act 2004, which opened a can of worms, giving councils unrestrained power, and is of the greatest danger to landlords.

Insurance premiums. I think there is a wide range on offer and in some cases landlords and oo’s premiums may be comparable. But landlords can set off their premiums against tax, while an oo cannot.

Rates for mortgages. If there was no MIR available for landlords (level playing field with oo’s) landlords would have a much reduced gearing (LTV) in order for their sums to add up. With lower LTVs, reduced risk for lenders, hence probably lower rates.

CGT. I have already stated in response to an earlier comment that virtually every UK landlord will also be an oo. So the landlord will be getting this when he puts on his oo hat. It would be nice if there was no CGT at all, but the state needs money. In fact, this is a prime example where the state does not consider landlording to be a business. In most other businesses if you sell the business asset you can roll over CGT. In other words, if you buy another asset with the proceeds of the first sale and continue in business you will not be subject to CGT until you finally sell for the last time.

I think the far greater threat to landlords is the non-ending legislation and the dictatorial powers given to councils.

My apologies in advance if, due to time pressure, I am unable to respond further.

But thank you again for your most valuable comments.

"Whereas landlords are able to set off their mortgage interest payment against tax, home owners cannot. This is blatantly unfair and means that even if the supply/demand dis-equilibrium is rectified, landlords will always be able to hoover up the most affordable properties to the detriment of young buyers – and renters will remain in servitude to landlords"

That's rubbish! Businesses are allowed to offset the costs of doing business - including loan and mortgage charges against tax. Landlords are a business. Yes, I'm sure the abolition of MIRAS did make it more difficult for some people to pay their mortgages, but really, the sharp increase of house prices relative to wages was caused by stupid lending policies and encourage people top buy who would have been lifetime council renters (Right ot Buy and so on). Best way to get landlords back in the market and stop rise in rents would be to build decent Council housing and stop Right to Buy, and treat landlords like any other business.

Reply to the comment left by Tim Jones at 02/03/2019 - 08:41
But sole traders and partners in an LLP (ie self-employed rather than LTD Co directors/shareholders) can claim finance costs for their businesses, so why can't sole trader landlords?

Reply to the comment left by Frederick Morrow-Ahmed at 25/03/2019 - 17:01
OK, so let's take this a stage further.

A taxi driver can offset the finance costs on his cab. He can also offset his insurance, fuel etc. Why? Because he is running a business. General motorists cannot do this.

A publican can offset his finance costs on his pub too. Why? Because he is running a business, which is a public house. His customers cannot offset the beer they buy but the publican can. Is that wrong too?

A printer can offset the finance costs of his printers. These are an investment, because they produce income and sometimes even appreciate in value, just like property. If a business has something printed they can offset the cost of the printing against their turnover, but the public cannot. Is that wrong?

Shops and supermarkets can also offset their finance costs against income, just as they do with the food they sell. Now food is just as essential to all human beings as shelter, but the public cannot offset the cost of their food against their income. Are you saying that is wrong?

So, the public cannot offset the costs of their fuel, insurance, finance costs, beer or food. Is that fair? I say is is fair, because that's not the business they are in. For the same logical reason, landlords are in the business of providing accommodation, so it should be only right and proper that they offset their costs of business, including finance costs, in exactly the same way as any other business can offset finance costs against the income producing assets of their business. That is logical.

Reply to the comment left by Kathy Evans at 25/03/2019 - 17:28
Members of LLP's cannot offset finance costs either. Only Limited Companies can do that.

Reply to the comment left by Mark Alexander at 25/03/2019 - 17:29
Brilliant Mark, I have some answers also below from me phone calendar, which u may tidy up, but basically the new clause 24 tax rules put some Landlords at a loss, so they sell up, don't buy any more etc.
Description:Clause 24 the biggest problem Landlords have ever faced.

Landlords paying more tax than they have made in profit.
Tory Govt not allowing those with mortgages to deduct their interest.

So you have £5000 rent in a year & £4000 mortgage.
It has always been you've made £1000 profit & paid 40% tax £400, leaves u with £600 profit for yourself.

Tax man not interested in your mortgage any more & wants 40% tax on £5000 rent.
You tell him 'Well, I've paid out £4000 mortgage, so I've only made £1000-HMRC says 'Not interested what mortgage you've had, we're taxing u on the whole full rent, not on what you've really made'
So u pay £2000 tax & £4000 mortgage, you've lost £1000 from renting your house out.

As an example, a private landlord with a rental income of £5,000 per month and mortgage interest costs of £4,000 per month would be left with an after-tax profit of £600 according to the old tax rules, assuming the landlord pays 40 per cent income tax on the net profit of £1,000.
But once the changes are fully implemented in 2020, the same landlord would make a loss of £200 per month as the tax bill would rise from £400 to £1,200,

The biggest problem by far is “Section 24” of The Finance Act (No. 2) 2015. This is not actually a tax change. It is an amendment to GAAP (Generally Accepted Accounting Principles). It changes the way that profit is calculated on rents received and then introduces “tax relief”. What it means to us in practice is that we cannot use our mortgage interest payments as an expense when working out the profit made by our portfolio. It is being phased in over 4 years and will be fully in force for the 2020/21 tax year. In figures it looks like this;
Rental turnover £170,000
Repairs, maintenance etc. £70,000
Finance costs (mortgage interest) £62,000 actual profit = £38,000 – tax payable at basic rate of 20% (£7600)
The new rules mean we cannot count the £62,000 of mortgage interest payments as an expense so the supposed profit is now £100,000! We have still only made an actual profit of £38,000 but we will be taxed on £100,000. To make matters even worse, this put us up a tax bracket and means we now pay tax at 40% instead of 20% (£40,000).
We now lose £2000 every year from renting these houses out. How do we & tenants live?

Reply to the comment left by Mick Roberts at 25/03/2019 - 17:40
Hi Mick

The principles are right but your numbers are wrong.

In your first example, the landlord receives £5,000 less £4,000 interest which leaves £1,000 profit. That's after ignoring all other costs. Yes he's taxed on the full £5,000 on that basis and 40% tax on £5,000 is indeed £2,000. However, you've forgotten to deduct the 20% tax credit on the £4,000, which equates to £800.

On that basis, he's only losing £200.

What a great deal hey?

It can be far more complex than that though, because his 'taxable income' could be more than £100,000. In that case, he loses £1 of nil rate band for every £2 of taxable profit, which is an effective 80% tax rate minus a 20% tax credit, thus leaving a 60% net effective tax rate on money he's already paid to a mortgage lender!

Reply to the comment left by Mark Alexander at 25/03/2019 - 17:53
Yes, I only did rough figures to explain to my tenants the basics of what the Govt has done to us which has then inevitably gave tenants a rent increase and they wondering why they can't get anywhere else with all the other landlords been shafted too.

Reply to the comment left by Mark Alexander at 25/03/2019 - 17:37In all business other than landlording, they can. An LLP is just multiple sole traders, really, who have to produce multiple (one for each partner) self assessment returns.